Better ESG factors and ‘M&A-driven growth’

Maybank Kim Eng analyst Lai Gene Lih has upgraded his call on electronics manufacturer Hi-P International to “buy” from “hold” due to its continued improvement in environmental, social and corporate governance (ESG) factors.

Lai has, however, maintained his target price of $1.23, due to the recent correction, which may have priced in negatives such as pricing pressure and demand uncertainty.

As Hi-P’s electronics manufacturing business exposes it to industry risks such as corruption, workplace safety, fair labour practices and environmental, its rolling out of new ISO standards to “improve its monitoring and execution of environmental and anti-corruption factors” is commendable.

“We believe the key risk to our ‘ buy’ call is if we have overestimated the rate of earnings recovery in FY2021 amid a still uncertain outlook,” Lai adds.

On the other hand, CGS-CIMB analysts William Tng and Darren Ong have maintained their “hold” recommendation. “Based on our understanding, orders from most of Hi-P’s key customers are healthy. We believe Hi-P is seeing domestic market demand in China, with orders for smart wearables and Internet of Things (IoT) devices from a Chinese customer,” they write in a report dated Oct 2.

“The other trend we noted is that some customers are enjoying stronger demand for their products due to the shift to work-from-home arrangements. We believe Hi-P is also experiencing stronger orders from a communications customer, which has benefitted from America’s trade war with China,” they add.

Like Lai, Tng and Ong have also maintained their target price of $1.23. “We believe Hi-P remains committed to its M&A growth strategy, supported by a net cash balance of $197 million as at end June 2020 and 80.2 million treasury shares,” they note.

To recap, Hi-P acquired South East Asia Moulding Company, a high-volume/high-precision engineering plastic components manufacturer, in 2019. — Felicia Tan